SWOT Analysis for EasyJet - Case Study Example

EasyJet SWOT Background: About EasyJet and the airline industry Air travel is one of the world's largest industries having generated more over $300 trillion into revenues in 2001 alone. The airline industry is clearly divided in the recent past into two distinct categories - the full service large airlines that fly the hub and spoke network and power international travel. These constitute players like American Airlines, United, Delta, Northwest, Air France KLM, and British Airways among others. They try to satisfy the network needs of various long haul and short haul travellers establishing large global routes, fly a mix of long haul and short haul aircraft, and are expensive to fly. In the last couple of decades, the advent of low-cost carriers has reinvented the airline industry. These efficient carriers offer no-frills service to travellers flying point-to-point short haul routes utilising efficient ticket distribution through direct internet offerings and utilise standardised short haul aircraft with quick gate turnaround times to maximise aircraft utilisation. South West Airlines is the pioneer in this segment in the US and EasyJet is the industry leader in this segment in Europe. Other significant players in this segment include Jet Blue in the US and Ryan Air in Europe. From the legacy days of large airline companies monopolising the market place, the airline industry has fast become a price-sensitive industry. In the post September 11 era, the airline offerings are more commodity-like, with players who offer the lowest price and efficient services being the most profitable survivors. Most large full service airlines have been facing the brunt of the decline and are fighting for survival, trying to get out of multi-billion dollar losses and bankruptcies. With the expansion of the European Union, and the breaking down of trade barriers, the airline industry was deregulated in 1992 and meant that any European airline could fly and country anywhere in Europe. In this changed landscape emerged the no frills airlines segment, which have achieved rapid growth in market share into the short haul European market. EasyJet, brainchild of Stelios Haji Ioannou, the son of a Greek shipping magnate who founded the company, based on the low cost, no-frills model of the US carrier Southwest, started in 1995. EasyJet is based on short haul air transport in a price in-elastic target segment and based on the concept that is that if prices are reduced, more people will fly. EasyJet flies to 33 locations in Europe with a fleet of over 120 aircraft and sells over 95% of its tickets through the internet. SWOT Analysis of EasyJet The SWOT analysis of a company examines the strengths, weaknesses, opportunities and threats faced by the company. Key success factors of the company can be identified from such an analysis and recommendations can be made leveraging on the strengths and opportunities of the company while trying to mitigate the threats and overcome the weakness of the company. There are both micro and macro economic factors influencing the opportunities and threats of EasyJet in the market place. Strengths EasyJet mission statement documents all that the company stands for and represents the key strengths of the company. It states, "To provide our customers with safe, good value, point-to-point air services. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers." In addition, the strengths of EasyJet come from the key concepts adopted by it, which is pitfall of traditional large airlines. The concepts include eliminating unnecessary costs and 'frills', which characterise 'traditional' airlines such as (1) Use of the Internet to reduce distribution costs - approximately 95 % of all seats are sold over the Internet, making EasyJet one of Europe's biggest Internet retailers (2) Maximise the utilisation of the substantial assets (each aircraft) significantly reduces the unit cost (3) Ticketless travel with no printed tickets reducing significantly the cost of issuing, distributing, processing and reconciling millions of tickets each year (4) No in-flight free food - Passengers can purchase food on-board (5) No pre-assigned seats, interline connections with other airlines and cargo/freight carriage - which is a 'simple service model' eliminating unnecessary, complex-to-manage and costly services. (6) Efficient use of airports - main destination airports throughout Europe, but gains efficiencies through rapid 30-minute turnaround times, and progressive landing charges agreements with the airports. Achieves extra rotations on the high-frequency routes, thereby maximising utilisation rates of its aircraft. (7) Paperless operations - undertaken entirely on IT systems, which can be accessed through, secure servers enabling huge flexibility in the running of the airline. (8) Leverage and take advantage of the reforms offered by the single European aviation market and (9) Informal company culture with a very flat management structure, which eliminates unnecessary and wasteful layers of management plus usage of Remote working and 'hot-desking' have been characteristics. Essentially all the strengths of EasyJet can be classified as its Key Success Factors (KSF). Other strengths include Charismatic leadership by Stelios, with relevant vision and mission, diversification into other markets namely car rental and Internet cafes, a Motivated workforce, Original and very effective promotion strategies and building of a Well-known and respected brand name. Very good knowledge of the market and spontaneous effective responses to other companies attempts to target their customers plus excellent customer service (e.g. offering refunds for flights delayed more than 4 hours.) round out the strength of their offerings. WEAKNESSES EasyJet does not have too many weaknesses unlike the large monolithic carrier airlines that are grossly inefficient. Major weakness could be flying solely within Europe, a limited network that is not global and the lack of capacity to serve high-paying passengers who would opt to fly one of the legacy carriers rather than a low cost airline. Limited profit margins in the range of 5 to 7% in single digit figures mean that there is limited margin for error for low cost airlines to stay profitable and grow. However, with larger competitors actually in the red, this is still a better cushion than the red ink on their competitor balance sheets. Opportunities The market segment that EasyJet operates in is full of opportunities and if only a few are capitalised, EasyJet has a tremendous potential to grow in the low cost airline market place. Most of the opportunities are due to changes in the external environment that EasyJet operates in. Some of the opportunities are: (1) EU expansion in future to more Euro countries provides more cheaper and accessible labour and a large pool of additional customers who can be converted to low cost travel and hence is a larger market place. (2) Possibility of UK joining the Euro which would help EuroJet to price all their tickets and expenditure in a single currency and would allow them to save money on currency conversions and hedging that needs to be done to avoid currency risks. (3) Future: centralised air traffic control in EU would lead to more efficient flight plans and flight paths, which could save on fuel costs, reduce flying times, and therefore allow more efficient use of planes for higher yields. (4) Future: global liberalisation of airline industry which could possibly see EasyJet expand to markets like US and Asia and possibly offer point-to-point flights between Europe and East coast destinations in the US. (5) Growing popularity of the internet will further drive usage of EasyJet.com and reduce ticket sales and distribution costs. More and more customers prefer the self-service model offered by the internet to other channels of interaction. (6) Terrorist fears are more favourable as people and businesses are more cost conscious and are more likely to travel into Europe, where the market has been more stable than the security threats in the US, especially due to the US involvement in Iraq and Afghanistan post September 11th and the terrorist threat from Al-Queda more focused towards the US rather than Europe. (7) Reduced aircraft prices due to order cancellation post September 11th - The airline market is currently very competitive and is a buyers market and therefore EasyJet has the favourable advantage of getting top prices for the 120 Airbus A319 orders as well as price protection for another 120 Airbus 319 aircraft for deliveries through to 2010 and this would favour the growth of EasyJet. (8) New aircraft models launched like the 555 seat double-decker Airbus A380 coupled with the opening of global aviation market and the larger seating capacities lower the operational costs and thereby would make transatlantic flights as a possible target segment that could be successfully tapped by low-cost airlines. Threats The target segment of low cost airlines that EasyJet operates in is fraught with danger and various threats that could threaten the existence of EasyJet. Most of the threats are due to changes in the external environment that EasyJet operates in. The following are the key threats as below: (1) Pressure to reduce prices in order to fill excess capacity may endanger survival and one of the weakness identified is the fact that margins are limited and therefore there is very little margin for error. (2) Price of Crude Oil - the rising price of crude can push up airline gasoline prices to a level that air travel is inhibited. (3) Risk of over-capacity if growth rates overheat - since there are variety of players introducing new routes and capacities, there are few players who are bound to fail and very careful route and capacity planning is required to sustain profitable growth. (4) Controlling the costs - Costs continue to rise continuously and it will be a challenge to keep costs down and maintain prices and keep the quality of service up. The larger airlines are reducing costs at a greater speed and reducing their highly bloated prices and soon there may not be a high differentiator in price between low cost airline and their larger rivals. (5) Problem of renegotiating initial contracts - the salaries under unionised contracts are going to go up for both pilots and non-pilot staff who are all unionised and this will have an impact on costs. (6) Wage inflation - this is tied to the above two items and is a major component of costs that needs to be controlled to offer a price competitive offering to the end customer. (7) Threat from charter airlines: offering "seat only" scheduled services - seat only charter airlines offer even lower costs than low fair carries and is a major threat to the low cost segment. (8) New EU compensation rules would also be a threat to increasing costs and this may have further impact when UK gets more integrated into the EU by also adopting the common currency of Euro. (9) Slot auctioning - critical slots in various key airports could be bought at higher prices by competitors or new entrants and this may push up prices or make EasyJet end up in non-competitive airports rather than ones preferred by customers. (10) Actions by Campaigners (such as the Campaign to Protect Rural England) could block airport expansion and the consequent increase in air travel times. (11) Possibility of new entrants who could design themselves to be more efficient ground up than existing players or merger of low cost competitors like Ryan Air with other low cost carriers could create larger size competition. Conclusion: Analysis of Success Factors and Recommendation for improvements In spite of various threats in the market place, EasyJet is a well-established player in the low cost airline segment in Europe and is poised to grow leveraging on their strengths and utilising opportunities available in the market. Though at a micro economic level various changes can be done, macro economic changes at a larger scale will have more benefit and impact for the growth of EasyJet and a few key areas of improvement for growth would include: (1) Target newer markets - The US, Trans Atlantic flights and newer destinations are area of growth. (2) Control costs by becoming a larger player more quickly and have the efficiencies from scale of operation. This could be by merging or buying out a US airline like Air Tran or Jet Blue or other smaller European competitors like Buzz or Niki Air, etc. (3) Aggressive bid for new slots at airports, lock in further volumes of new aircraft from Airbus. (4) Influence government policy for opening aviation and await Britain's joining of the Euro. (5) If open skies policy established with the US, get into newer target segments like Transatlantic flights as a low cost carrier leveraging larger capacity aircraft like the Airbus 380 for which some advance booking can be done to lock up capacity. (6) Tie up with a consortium of low-cost airlines in complimentary markets and perform joint internet marketing to leverage on each other's strengths. Sources The Industry Handbook - The Airline Industry [On-line] http://www.investopedia.com/features/industryhandbook/airline.asp 14 Dec. 2005 State of the airline industry [On-line] http://www.union-network.org/unitourism.nsf/0/308769021830b350c1256d1a002b95f5OpenDocument 14 Dec. 2005 Low cost carriers [On-line] http://en.wikipedia.org/wiki/Low-cost_carrier 14 Dec. 2005 Despite Industry Turmoil, Low Cost Airlines Are Growing and Profitable [On-line] http://www.gao.gov/highlights/d04837thigh.pdf 14 Dec. 2005 EasyJet.com company overview [On-line] http://www.easyjet.com/EN/About/Information/index.html 14 Dec. 2005 EasyJet.com aircraft and fleet information [On-line] http://www.easyjet.com/EN/About/Information/infopack_fleetinfo.html 14 Dec. 2005 EasyJet.com route information [On-line] http://www.easyjet.com/EN/About/Information/infopack_routeinfo.html 14 Dec. 2005 Investment House Merrill-Lynch Goes Bullish On Ryanair, EasyJet (2001) [On-line] http://www.findarticles.com/p/articles/mi_m0ZCK/is_24_11/ai_75641795 14 Dec. 2005 Meier, Michael (2002) European Low-Cost [On-line] http://www.airsider.net/files/2002/0902/001/eurolow.htm http://www.airsider.net/files/2003/0203/001/eurolow2.htm 14 Dec. 2005 Low cost transatlantic travel [On-line] http://www.attitudetravel.com/lowcostairlines/transatlantic/ 14 Dec. 2005 Read More